Licensing Advice from Chris Muggleton

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Territory(Posted: 21-08-2009)

By Chris Muggleton

Hello!

This month we will discuss the issue of Territory, with it being August and the height of the holiday season here in Europe I trust that you are reading this in another territory or on your blackberry out of the office.

As ever our discussions are limited to the “mythical” Standard Merchandise License Agreement and because of the nature of this month’s topic are based on those Agreements for Licensees in the EEA.

The License Agreement will define the Territory i.e. the specific country or countries that the Licensee is permitted to sell License Articles in. The purpose of the clause is twofold: First, it assists in the control of where the Licensed Articles can be sold and second, permits the Licensor to license the Licensed Property to different Licensees in different territories. Further, it will only be those royalties due as a result of sales in the specific Territory that would be applied to any Advances paid and ultimately the Contractual Guarantee.

So what are the implications/consequences for a Licensee who sells Licensed Articles outside the contractual Territory?

·          As with most things to do with Licensing the impact is going to be financial as royalties for sales outside of the Territory cannot be offset against any Advance balances.

·          The License Agreement may stipulate a higher royalty rate for those sales made outside of the Licensed Territory;. In some cases this could be an additional six per cent on top of the “normal” royalty rate. 

·          An increasing number of License Agreements are incorporating an “Unlicensed Use” clause which would permit the Licensor to recover the full profit margin of the Licensee on those sales outside the contractual Territory.

·          However, EU law prevents different royalty rates by territory for those Licensees selling within the EEA and the accepted position is that providing the Licensee does not actively solicit sales to buyers outside their territory then they may not be penalised. 

Again this issue highlights the importance of good contract management by the Licensor by ensuring Licensees submit royalty declarations by territory.

As ever we have only scratched the surface in this small space and should only be taken a general advice not a legal opinion. Should you require any further explanation I can be reached at chris@licensingadvice.com

Next month I will discuss Sell Off.

Chris